The Hague Convention on Choice of Court Agreements now in force
Major changes since October?
On 1 October 2015 the Hague Convention on Choice of Court Agreements (HCCCA) came into force in the European Union. The Convention is intended to create a court alternative to arbitration, for which a uniform system of rules has long been successfully established in the form of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards for internationally operating companies involved in cross-border disputes. In contrast to the New York Convention, however, the HCCCA so far only has a very limited geographical scope. Besides the EU Member States, with the exception of Denmark, only Mexico has ratified the Convention so far. The USA and Singapore are signatories to the Convention, but have not yet ratified it.
The Convention applies to international matters in which exclusive jurisdiction for civil and commercial matters has been agreed and which do not involve consumers. The HCCCA does not apply to, amongst other things, employment law and antitrust matters or with respect to tort claims for damage to tangible property that do not arise from a contractual relationship.
The Hague Convention on Choice of Court Agreements essentially establishes the exclusive jurisdiction of a court of a contracting state, whose jurisdiction is the subject of an exclusive choice of court agreement which has been effectively concluded in accordance with the Convention. This exclusive jurisdiction must be respected by the other courts of the contracting states.
Article 3 c) of the HCCCA requires that a valid choice of court agreement as defined by the Convention be concluded in writing or another means of documentation which allows for subsequent access to information regarding the agreement of exclusive jurisdiction. If an exclusive choice of court agreement as a clause forms part of an overall contract, the validity of the exclusive choice of court agreement must be determined separately from the validity of the rest of the contract. It is to be treated as an independent agreement and is not affected by the invalidity of the contract.
A judgement given by a court designated in an exclusive choice of court agreement is ultimately to be recognised and enforced in the other contracting states under Article 8 (1) of the HCCCA. The recognition and enforcement may only – in accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 – only be refused on the grounds listed in the Hague Convention on Choice of Court Agreements. Article 9 of the HCCCA only specifies serious grounds for refusal to recognise or enforce a judgement, for example if the exclusive choice of court agreement was invalid, the defendant lacked the option of arranging its defence, the judgement was obtained by fraud in connection with a matter of procedure or if recognition or enforcement was manifestly incompatible with the public policy of the contracting state in which the enforcement is to be carried out. The lists of grounds for refusal is conclusive. In particular, no further review of the court judgement in the matter is permissible (conclusiveness of foreign judgements).
With respect to a possible ratification of the Convention by the USA, it is also notable from the perspective of German parties that recognition and enforcement pursuant to Article 11 of the HCCCA can also be refused if the judgement awards damages that do not compensate a party for actual loss or harm suffered. This includes the often very high punitive damages permissible in the USA, which German law sees as being incompatible with (German) public policy. In this respect, the explicit reference to punitive damages in Article 11, however, therefore only constitutes a clarification. German courts could also have refused to recognise and enforce US judgements pursuant to Article 9 of the HCCCA without this regulation due to their incompatibility with German public policy. There is unlikely to be any impact on the ratification of the HCCCA by the USA (which has not yet taken place), in particular because the USA has signed the Convention including Article 11 and the HCCCA as such is based on an initiative of the USA.
The Hague Convention, which has only now come into force, came into being in 2005 as the result of the “Judgements Project”, a 1992 initiative by the USA. The objective of this initiative was to create a global convention on the recognition and enforcement of court judgements in civil matters. Once it became apparent that it was not (yet) possible to realise such an extensive convention, the Hague Conference decided to restrict the negotiations to the development of rules for international jurisdiction in commercial matters based on exclusive choice of court agreements. In the spirit of finding a “lowest common denominator”, this work ultimately led to the adoption of the Hague Convention of Choice of Court Agreements in 2005. The justice ministers of the EU Member States finally approved a decision to ratify the Hague Convention of Choice of Court Agreement on 10 October 2014.
Relationship to the Brussels I Regulation
The recast Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (Brussels I Regulation) of 10 January 2015 (see here for a discussion of the recast Brussels I Regulation) at any rate has a similar material scope in parts. The Brussels I Regulation likewise contains provisions on the significance of exclusive choice of court agreements (Article 25) and the recognition and enforcement of court judgements (Article 36 ff.).
The relationship of the provisions of the HCCCA to other EU Regulations – and therefore also to the Brussels I Regulation – is governed by Article 26 (6) of the Convention. Accordingly, the Brussels I Regulation takes precedence over the HCCCA if both parties are resident in a contracting state in the EU. The current scope of the Hague Convention on Choice of Court Agreements is therefore limited to exclusive choice of court agreements governing the relationship of an EU Member State (with the exception of Denmark) to Mexico.
The Hague Convention on Choice of Court Agreement creates a certain standardisation of the regulations governing the jurisdiction of courts and the recognition and enforcement of court judgements. Recognition and enforcement are in principle made easier on the basis of the HCCCA because on the one hand the requirement that reciprocity be granted in accordance with Section 328 of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) ceases to apply. On the other hand, there are only a limited number of reasons for refusing to recognise or enforce a foreign judgement. There is also an increased level of legal certainty with respect to the validity and enforceability of exclusive choice of court agreements in an international context. The HCCCA is therefore catching up on something which has already existed in arbitration since 1958 with the New York Convention.
These advantages will, however, only become noticeable once other countries besides Mexico and the EU have ratified the HCCCA. The practical significance of the Convention is modest to date in view of its ratification status. As a result, the Hague Convention on Choice of Court Agreements is unlikely to constitute any serious competition yet to the New York Convention, which applies in almost 150 countries, or to arbitration in general.
Please contact Dr Jennifer Bryant if you have any questions regarding the recognition and enforcement of national court judgements or arbitral awards.
Any questions? Please contact: Dr. Jennifer Bryant
Practice Group: Litigation, Arbitration & ADR and Commerce & Trade